WHY NO LOAD-SHED­DING IS BAD NEWS

South Africa’s elec­tric­ity us­age, eco­nomic growth and gov­ern­ment debt are all in­ter­linked. Dras­tic changes are needed in or­der to brighten the coun­try’s out­look, which cur­rently looks bleak.

Finweek English Edition - - FRONT PAGE - By James-Brent Styan James-Brent Styan has writ­ten about Eskom since 2008. His book, Black­out: The Eskom Cri­sis, is pub­lished by Jonathan Ball Pub­lish­ers. He is an em­ployee of the Western Cape Gov­ern­ment and writes in his per­sonal ca­pac­ity.

we have been with­out load-shed­ding for around 80 days now. This is the worst thing to hap­pen in South Africa to­day. Why? Be­cause it is an in­di­ca­tion of the cri­sis the econ­omy finds it­self in. Be­tween 2014 and 2015, SA’s peak de­mand for elec­tric­ity has shrunk by be­tween 1 500MW and 3 000MW. Peak de­mand to­day is around a level of 30 000MW. In 2014 peak de­mand was hit­ting lev­els of around 33 000MW. More con­cern­ing is when you look back a bit fur­ther, in 2011 peak de­mand was hit­ting lev­els of 36 000MW.

This is not a good story to tell. Look­ing at the Na­tional Trea­sury’s eco­nomic growth in­di­ca­tors, the fig­ures bear out what the elec­tric­ity data is re­veal­ing. In his Medium-Term Bud­get Pol­icy State­ment late last month, min­is­ter of fi­nance Nh­lanhla Nene re­vised the coun­try’s 2015 eco­nomic growth fore­cast down­wards to 1.5%. Pro­jec­tions for 2016 have also been re­vised down­wards.

Bleak out­look on tax rev­enue

Nene was at pains to ex­plain how gov­ern­ment ex­pen­di­ture is un­der in­creas­ing pres­sure given the lack of growth in rev­enue.

In the speech, he said that SA’s gross tax in­come will fall by R7.6bn this year. And over the next three years? It’s pro­jected to de­crease by R35bn. So what hap­pens when gov­ern­ment’s in­come is not in­creas­ing but ex­penses are? It must find money some­where so it ends up bor­row­ing more – a lot more.

Again, the data is there. Since 2008, SA’s debtto-GDP ra­tio has in­creased from 27% to 47% in March this year. More con­cern­ing is the fact that gov­ern­ment plans to add an ad­di­tional R600bn of debt to the bal­ance sheet over the next three years. R600bn. It’s worth re­peat­ing.

Some more data on state debt: in March of 2015, the coun­try’s debt pay­ments for the next three years were pro­jected to be R420bn. That’s roughly R387m per day. Pay­ing for debt – al­most two Nkand­las per day.

Why am I ham­mer­ing on eco­nomic growth? Be­cause quite sim­ply, with­out it, the coun­try can­not de­liver on its prom­ises to lift peo­ple out of poverty and cre­ate jobs. We will also get more and more in­debted. If gov­ern­ment debt stays on the up­ward tra­jec­tory it is, then rat­ings agen­cies may start to relook the credit rat­ing of the gov­ern­ment.

Any down­grade would add a mas­sive amount of ad­di­tional pres­sure to the whole mix.

Will the NDP re­main rel­e­vant?

The cur­rent eco­nomic growth also makes the Na­tional De­vel­op­ment Plan (NDP) a lame duck that is mean­ing­less. The contents of the NDP are meant to trans­form SA into a truly global pow­er­house. The NDP is meant to elim­i­nate in­come poverty by re­duc­ing the num­ber of house­holds in the coun­try earn­ing a monthly in­come of less than R419 per per­son (in 2009 prices) from 39% to 0%. The im­ple­men­ta­tion of the NDP is also meant to re­duce in­equal­ity and shrink the Gini co­ef­fi­cient from 0.69 to 0.6.

To achieve th­ese two aims, the NDP iden­ti­fied some en­abling mile­stones. Th­ese in­clude in­creas­ing em­ploy­ment from 13m peo­ple in 2010 to 24m peo­ple in 2030.

This is real jobs, not ‘job op­por­tu­ni­ties’, by the way. The NDP also notes the need to pro­duce suf­fi­cient en­ergy to sup­port industry at com­pet­i­tive prices, en­sur­ing ac­cess to elec­tric­ity for poor house­holds, while re­duc­ing car­bon emis­sions per unit of power by one third. That is quite a mouth­ful. For me the NDP stands and falls at one point, and I quote: “Trans­form­ing the econ­omy and cre­at­ing sus­tain­able ex­pan­sion for job cre­ation means that the rate of eco­nomic growth needs to ex­ceed 5% per year on av­er­age.” South Africa is cur­rently grow­ing at 1.5%.

We may as well throw the NDP out the win­dow. Un­less we be­lieve the coun­try will some­how grow at lev­els of 9% plus in years to come?

The only good thing about a slow econ­omy is that it gives Eskom the space to do proper main­te­nance on its power sta­tions. I sin­cerely hope and pray this is what’s hap­pen­ing. If not, we’re go­ing to be in for a tur­bu­lent decade

to come.

Be­tween 2014 and 2015, SA’s peak de­mand for elec­tric­ity has shrunk by be­tween 1 500MW and 3 000MW. Peak de­mand to­day is around a level of 30 000MW. In 2014 peak de­mand was hit­ting lev­els of around 33 000MW.

Eskom’s Grootvlei power sta­tion in Mpumalanga

Nh­lanhla Nene Min­is­ter of fi­nance

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